An SBA-backed bank loan can be challenging to obtain. Here are some reasons your application may be turned down.

An SBA-backed bank loan can be challenging to obtain. Here are some reasons you may be turned down for an SBA Loan, and what to do to improve your odds.

Every small business needs access to capital, but getting it isn’t always easy. Though lenders are often criticized for being tight-fisted, the problem may be that a business owner didn’t understand how his or her company looks to the bank. Here are five reasons your company may be turned down for an SBA Loan, and what you can do to improve your chances. Although SBA’s 7(a) loan program is the most broadly used, the principles apply to other loan programs.

1. Not enough collateral

Bankers will say they want to see a good business plan, but even if you have the best business plan on earth, SBA loans require collateral.

What to do: Shop banks to understand what portion of equity they will require for loans. Talk with the banks about various types of collateral they will accept, including real estate, personal securities, business receivables and, potentially, inventory of your business.

2. No track record

Banks want to see a going concern, with three years or more of growth. If you are a brand-new business or have been going for just a year or two, they will scrutinize your business plan very closely.

What to do: At the best, they will demand more collateral to protect their downside; at the worst, they will turn you down.

3. Not enough experience

Experienced operators of a business are more likely to get loans approved than the most brilliant newbie. Furthermore, experienced business owners typically know how to assemble the right kind of team that can successfully carry out the business plan.

What to do: Most bankers are skeptical that one person can do all things well. A team with complementary kinds of experience may help your case.

4. Not enough planning

Business plans can be a bit overhyped in terms of their importance to a loan. However, a good business plan demonstrates a person has done his or her homework—usually market research—and has a realistic idea how he or she can grow their business.

What to do: Prepare a realistic plan that fully outlines all facets of your business. What the bank also wants to see: Side benefit: Preparing a business plan will make you challenge some of your assumptions for wanting the loan in the first place.

5. Not enough skin in the game

Beyond collateral, banks like the idea that an owner is invested in his or her business. Banks don’t like to be the first ones in with their money on any business idea.

What to do: Banks want to see people asking for money who believe in their idea enough to put their own money at risk.